Question

Roedel Electronics produces tablet computer accessories, including integrated keyboard tablet stands that connect a keyboard to a tablet device and hold the device at a preferred angle for easy viewing and typing. Roedel produces two different sizes of integrated keyboard tablet stands, small and large. Each size uses the same keyboard attachment, but the stand consists of two different pieces, a top flap and a vertical stand that differ by size. Thus, a completed integrated keyboard tablet stand consists of three subassemblies that are manufactured by Roedel: a keyboard, a top flap and a vertical stand.

Roedel's sales forecast indicates that 7,000 small integrated keyboard tablet stands and 5,000 large integrated keyboard tablet stands will be needed to satisfy demand during the upcoming Christmas season. Because only 500 hours of in-house manufacturing time are available, Roedel is considering purchasing some, or all, of the subassemblies from outside suppliers. If Roedel manufactures a subassembly in-house, it incurs a fixed setup cost as well as a variable manufacturing cost. The following table shows the setup cost, the manufacturing time per subassembly, the manufacturing cost per subassembly, and the cost to purchase each of the subassemblies from an outside supplier:

		Manufacturing
Subassembly	Setup Cost ($)	Time per Unit (min.)	Cost per Unit ($)	Purchase Cost per Unit ($)
Keyboard	1,000	2.1	0.40	0.65
Small top flap	1,200	2.2	2.90	3.35
Large top flap	1,900	3.0	3.15	3.70
Small vertical stand	1,500	0.8	0.30	0.55
Large vertical stand	1,500	1.0	0.55	0.90

If required, round your answers to nearest whole number.

(a)	Determine how many units of each subassembly Roedel should manufacture and how many units of each subassembly Roedel should purchase. If an amount is zero, enter “0”. Round your answers to the nearest whole number, if necessary.
	Quantity Subassembly Production Purchase Keyboard _____ ____ Small Top Flap ____ ____ Large Top Flap ____ ____ Small Vertical Stand _____ ____ Large Vertical Stand _____ _____
	What is the total manufacturing and purchase cost associated with your recommendation?
	$______
(b)	Suppose Roedel is considering purchasing new machinery to produce large top flaps. For the new machinery, the setup cost is $3,000; the manufacturing time is 2.5 minutes per unit , and the manufacturing cost is $2.60 per unit. Assuming that the new machinery is purchased, determine how many units of each subassembly Roedel should manufacture and how many units of each subassembly Roedel should purchase. If an amount is zero, enter “0”.
	Quantity Subassembly Production Purchase Keyboard _____ _____ Small Top Flap ______ ______ Large Top Flap ______ ______ Small Vertical Stand ______ ______ Large Vertical Stand ______ ______
	What is the total manufacturing and purchase cost associated with your recommendation?
	$_______

Answer 1

(A) Cost of Production V/s Purchase Price Analysis

Small Tablet Stand Large Tablet Stand

Keyboard Small Top Flap Small Vertical Stand Keyboard Large Top Flap  Large Vertical Stand

Cost/ unit 0.40 2.90 0.30 0.40 3.15 0.55

Purchase Price 0.65 3.35 0.55 0.65 3.70 0.90

Excess of Purchase price  

over cost (a) 0.25 0.45 0.25   0.25 0.55 0.35

Hour/ unit (b) 2.1 2.2 0.8 2.1 3.0 1.0

Excess cost over 0.12 0.204 0.3125 0.12 0.183 0.35

limiting factor (hrs)(a/b)

Ranking to produce III II IV I

Distribution of Hours min Manufactured Bought

Total Hours 30,000

Less large Vertical Stand (5000*1)    5000 5000 0

less Small Vertical Stand (7000*0.8) 5600 7000 0

less Small Flap (7000*2.2) 15400 7000 0

less Large Flap (balance hrs 4000*) 4000 1333* (4000/3) 5667

Keyboard (5000+7000= 12000) 12000

* 4000= 30000-(5000+5600+15400)

(B) Cost of Production V/s Purchase Price Analysis

Small Tablet Stand Large Tablet Stand

Keyboard Small Top Flap Small Vertical Stand Keyboard Large Top Flap  Large Vertical Stand

Cost/ unit 0.40 2.90 0.30 0.40 2.60 0.55

Purchase Price 0.65 3.35 0.55 0.65 3.70 0.90

Excess of Purchase price  

over cost (a) 0.25 0.45 0.25   0.25 1.10 0.35

Hour/ unit (b) 2.1 2.2 0.8 2.1 2.5 1.0

Excess cost over 0.12 0.204 0.3125 0.12   0.44 0.35

limiting factor (hrs)(a/b)

Ranking to produce IV III I II

Distribution of Hours min Manufactured Bought

Total Hours 30,000

Less large Flap (5000*2.5) 12500 5000 0

less Large Vertical Stand (5000*1) 5000 5000 0

less Small Vertical Stand (7000*0.8) 5600 7000 0

less Large Flap (balance hrs 6900*) 6900 3136 (6900/2.2) 3864

Keyboard (5000+7000= 12000) 12000

* 6900= 30000-(12500+5000+5600)

Note1: As the new machinery is purchased hence it is a sunk cost and not relevant for decision making.

Note 2 : Assebly cost being fixed cost hece ignored for decision making.